October 18, 2008

Pilgrim's Pride not planning to file for bankruptcy

Pilgrim's Pride said on Friday that it is not expecting to file for bankruptcy protection, but concerns on whether the company would be able to meet its debt obligations dragged its shares down nearly 23 percent.

Pilgrim's Pride faces an October 28 deadline on a credit covenant and has an interest payment of nearly US$26 million due at the start of November.

Company spokesman Gary Rhodes said Pilgrim's Pride is developing a comprehensive business plan to help meet the industry's financial and operational challenges, while trying to explore opportunities to refinance and recapitalise their business and to operate more efficiently.

A Wall Street Journal article quoted unidentified sources saying that Pilgrim's Pride may have to seek bankruptcy protection if it failed to raise money or extract concessions from its lenders. The filing could help expedite a sale of the company, and two potential suitors for the company were Tyson Foods Inc. and Mexican poultry producer Industrias Bachoco SA de CV, the sources said.

Morningstar analyst Ann Gilpin said there was a 50-percent chance that Pilgrim's Pride would file for bankruptcy. To meet the credit covenant due on October 28, either corn prices have to fall or chicken prices have to increase, but there isn't much the company could do to improve performance, according to Gilpin.

Higher corn prices have hurt Pilgrim's Pride's margins this year, forcing the company to reduce production and close down several facilities. The chicken industry also suffered from high fuel prices, while ample meat supplies and lower consumer spending power pressurise returns.

Pilgrim's Pride is at a significantly weaker position than companies like Tyson Foods as it concentrates on chicken and do not have a beef or pork business to fall back on. It is also struggling on a US$1.5 billion debt that was incurred when it took over rival company Gold Kist Inc.

The Journal's unnamed sources said Pilgrim's Pride was also considering selling assets, including its Mexican operations, various poultry plants and some real estate, but had not made any decisions.